he new week kicked off with Chinese stocks falling out of bed once again reminding traders that instability in Chinese stock markets may not be over, it may just be getting started. The Shanghai CSI 300 fell 8.5% to start the week while the Hang Seng dropped 3.0%. A decline in Chinese industrial profits building on last week’s weak China flash PMI appears to have sparked the selloff.
For Chinese markets to decline that badly even with all of the stability measures in place, indicates that markets there may remain fragile for a long time to come. Whether the weakness in stocks is a cause or a reflection of potential instability in the Chinese economy remains to be seen (most likely both may have an effect on each other).
Resource traders don’t appear to be waiting around to find out. Even with USD weaker today, commodity markets are under heavy pressure with WTI and Brent crude oil down 1.5-2.0%, copper down 1.5% and corn down 2.6%.
Falling Chinese indices have acted like an anchor on other stock markets with European and US indices also trading 1.5-2.0% lower to start the week. Even better than expected durable goods orders haven’t and takeover activity in the pharmaceutical / biotech sector surrounding Teva, Allergan and Mylan hasn't been enough to support US shares.
Currency markets are mixed today, USD and gold are underperfrorming. GBP is a bit soft as reports the Brexit referendum on EU membership could be scheduled by June 2016 raise questions about what impact that could have on the Bank of England’s interest rate liftoff schedule. Continental currencies like EUR, SEK and CHF have rallied with Greece concerns subsiding for now (although this could change at any time).
Teva Pharmaceuticals agreed to purchase Allergan’s generic drug business for $40.5 B in cash and shares in a friendly deal
Teva Pharmaceuticals dropped its hostile takeover bid for Mylan
Significant announcements released overnight include:
US durable goods orders 3.4% vs street 3.2%
US durables ex transport 0.8% vs street 0.5%
US capital goods non-defense 0.9% vs street 0.5%
UK CBI total orders (10) vs stret (6)
UK CBI selling prices 1 vs street (8)
UK CBI business optimism 8 vs street 1
Germany IFO bus climate 108.0 vs street 107.2
Germany IFO current asesmnt 113.9 vs street 112.9
Germany IFP expectations 102.4 vs street 101.8
China industrial profits (0.3%) vs previous 0.6%
Upcoming significant announcements include:
10:30 am EDT US Dallas Fed (3.5) vs previous (7.0)
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